Tax time is upon us. If you recently became self-employed or started a business, you know that one of the most stressful times of the year can be tax season. Business owners and contractors are responsible for paying their own taxes.
Filing is often no longer a quick fix where you’re in and out, then receive a nice refund check a few weeks later. Tax time can be stressful because business owners run the risk of getting audited, or owing more money than they can afford to pay the IRS.
Here are some easy ways that new business owners can stay on track and make tax time less stressful.
Keep Organized Records of Everything
As soon as you start bringing in an income, track everything. This is something I failed to do during the first yearn of being self-employed. I was so excited to make money, that I didn’t track my income and expenses closely enough.
You want to save receipts and statements. Track everything in a spreadsheet and update it monthly or weekly. I like to update my spreadsheet monthly but you can start with weekly if you feel like you may forget about some expenses or deposits by the end of the month.
Pay Quarterly Estimates
Once you start tracking your income and expenses closely, it will be easy to make quarterly estimated payments to the IRS throughout the year. Each month, set aside a percentage of your income to pay taxes.
Talk to a tax professional to see how much you should save specifically, but most small business owners end up paying anywhere from 25% to 35% of their gross income. This is just a guideline as you may pay more or less. This is why it’s important to go over this with your accountant.
Your accountant can help you determine how much to pay when quarterly taxes are due. You may be charged a penalty if you don’t pay quarterly estimates during the year so this could mean more money out of your pocket.
Hold onto receipts when you do make payments. That way, you have them on hand if you need to verify your payments while filing your taxes for the year.
Don’t Miss Out on Tax Deductions
Tax deductions are the best part of filing taxes as a business owner. If you kept up with all your expenses, you can deduct some of them from your taxable income and take advantage of other tax credits you may qualify for.
If you’re going to file your own taxes, I recommend using smart software like TurboTax. This will aid you in being able to apply deductions and tax credits. It’s also a super easy platform.
If you’re filing with a CPA, make sure they explain all the deductions to you and share any tax credit options you may be able to take advantage of.
Summary
Organization is the #1 defense you have to make tax time less stressful. As a business owner, you will be responsible for more paperwork and records. This is why you need to get organized from the start. If you feel behind and didn’t organize all your expenses and income, you will just have to block out time to get back on track.
The filing deadline is in April each year. This means you still have time to get all your documents together. Take a few weekends out of the month and spend a few hours each day getting organized and updating your accounting spreadsheet.
Once you are organized, you’ll feel much more prepared and this will make filing taxes a breeze.
